How privatisation ruined everything
How privatisation ruined everything
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The privatisation craze began in earnest in Australia in the early 1990s. Governments—state and federal, Labor and Coalition—were on board from the beginning, and over the following three decades more and more of Australia’s most important, and valuable, public assets have been sold off.

The sell-offs have been justified with reference to the supposed lower prices and higher quality service that would result from replacing government monopolies with competitive markets. Yet in the areas of the economy most impacted by privatisation, the results have been the same: higher prices and poorer service for consumers, mass sackings and attacks on the wages and conditions of the remaining workforce.

In a 4 August tweet, journalist Mike Carlton put it like this: “Show me where handing a social need to private greed has actually benefited society. Aged care? Childcare? Workers’ compensation? Gas and electricity? Health insurance? Banking? Airlines? Employment ‘providers’? Vocational education? IT DOESN’T FUCKING WORK”. Just look at some of the main areas of the Australian economy and society that have been impacted by the privatisation craze.

Electricity

The privatisation of Australia’s electricity industry is perhaps the biggest failure of all. The industry is a classic example of a natural monopoly. It doesn’t make sense for multiple companies to compete against each other to generate, transmit and supply electricity. Reflecting this, the history of the electricity industry in Australia up to the 1990s is one of increasing centralisation, with governments playing the dominant role from the 1950s onwards.

By the early 1990s, the Australian ruling class was determined to change this. That year, Project Victoria was formed—a collaboration between neoliberal think tanks the Institute of Public Affairs and the Tasman Institute and thirteen business and employer organisations. Its aim was to develop a policy agenda for the Kennett-led Coalition government that the ruling class hoped would romp to power in the 1992 Victorian state election.

At the core of the Project Victoria agenda was the break-up of the State Electricity Commission of Victoria (SECV). The argument was that a privatised electricity industry, by bringing in the “profit motive, and the disciplines associated with the markets”, would “eliminate waste and inefficiency”. Governments, so the neoliberal mantra went, were too slow moving and weighed down by bureaucracy to deliver services efficiently.

Reality tells a different story. In the years leading up to privatisation, electricity in Victoria was cheap for consumers and profitable for the government. A study by the Electricity Supply Association found that the SECV ranked in the top ten out of 1,000 utilities worldwide for efficiency of resource use. And according to a 1994 report by the Bureau of Industry Economics, the price paid for electricity by industry customers in Victoria was the eighth cheapest out of 40 OECD countries. In the year before Kennett began its privatisation, the SECV paid a $191 million dividend to the state government and made a profit of $207 million.

None of this mattered, of course, to Kennett and his fellow neoliberals. The SECV was broken up into separate generation, transmission and distribution sections in 1993, and these pieces were further broken up and sold through the 1990s. The federal Labor government put wind in Kennett’s sails when, in 1993, it began pushing states to adopt its new national competition policy, under which increasing competition in the electricity industry was a top priority.

How did this early experiment in privatisation pan out? A 2019 discussion paper by David Richardson of the Australia Institute makes clear the extent of the failure. Since privatisation began in the 1990s, he writes, “The core economic efficiency of electricity production and distribution has performed worse than any other industry”.

Today’s electricity industry is heavy on marketing and managing, and light on producing and distributing. According to Richardson’s calculations, real output per employee in the industry fell by 38 percent between 2000 and 2018. But the number of sales representatives rose by almost 400 percent and the number of managers is up 217 percent. “There are now just 5.8 non-managerial workers employed in electricity for every manager, compared with 13.7 twenty years ago”, he writes.

All this has contributed to rapid price rises. An earlier Australia Institute report found that the cost of electricity in Australia increased by 170 percent on average between 1995 and 2012, “an increase four times higher than the rise in the consumer price index”. Richardson estimates that every electricity customer is paying, in effect, a $100-$200 a year premium “for the privilege of being hounded with advertising and marketing for a basic service” that we have no choice but to use. Meanwhile, the big electricity companies, such as Origin, AGL and EnergyAustralia, are laughing all the way to the bank.

Public transport

Another 1990s privatisation experiment was in Melbourne’s public transport network. The network wasn’t actually sold—the government retains ownership and overall control of it. But since 1999, the day-to-day operation of the system has been contracted out to the private sector, which receives several billion dollars in government subsidies each year. The promised cost reductions and service improvements haven’t materialised. According to the Victorian Public Transport Users Association, “the subsidies paid to the privatised train and tram operators are around 50 percent higher than those formerly paid to the PTC [Public Transport Corporation—a public authority] to run the same services ... Transport ministers themselves have admitted there were no real cost savings from privatisation. Fares have also increased faster than inflation, so that passengers are footing the bill for privatisation as well”.

Telecommunications

From 1901 until the early 1990s, the federal government was responsible for managing Australia’s telephone network, first through the Postmaster-General’s Department and from 1975 through the Australian Telecommunications Commission (Telecom). Competition was introduced in 1991 with the arrival of Optus, which was formed after the federal Labor government sold AUSSAT—an agency that had launched a network of satellites for Australian military and civilian use. The privatisation of Telecom, which in 1993 was renamed Telstra, was started by the Coalition government under John Howard in 1997. The process continued over the next fourteen years, with the government’s stake in the company sold in a series of tranches, ending under the Gillard Labor government in 2011.

Are we better off now than we would have been had telecommunications, including the development of the mobile and broadband networks, remained in government hands? Do we really need so much choice for a service everyone depends on, and which itself relies on a common set of basic infrastructure and technology? Is it efficient, for instance, for multiple mobile phone companies to build and maintain their own set of mobile towers around the country? Is it really such a privilege to have multiple phone and internet providers pursuing us with their armies of marketers?

The answer, of course, is no. Any benefits from the existence of a competitive market in telecommunications has been more than wiped out by the additional, and completely unnecessary, complexity of the system. And all this competition hasn’t helped us get the basics right. Australia has decent quality mobile internet, but for fixed broadband, which is arguably the most important single bit of infrastructure in a modern economy, our average internet speeds languish at 62nd in the world—below countries such as Vietnam, Belarus, and Brazil.

Airlines

The privatisation of Australia’s airline industry has been another bonanza for big business with no tangible benefit to the public. The collapse of the industry in the context of the COVID-19 pandemic has starkly illustrated this. As the pandemic spread in March and the number of people travelling declined, the government announced an initial bailout of $715 million. In April, a further $165 million was given to Virgin and Qantas to keep flying on key Australian air routes.

This government largesse has come despite Qantas posting a $1.3 billion profit in 2019, a year in which its CEO, Alan Joyce, took home a salary of $23.9 million. And it hasn’t done anything to protect the jobs of airline workers. In June, Qantas announced that it would sack 6,000 staff as part of its “three-year recovery plan” from the pandemic. In August, the new owners of Virgin Australia, private equity firm Bain Capital, announced 3,000 lay-offs. Thousands more airline industry workers are currently dependent on the government’s JobKeeper program and more sackings are likely as that is wound back.

From the end of the Second World War to 1993, the airline industry was dominated by the two government-owned airlines—Qantas and Trans Australia Airlines (renamed Australian Airlines in 1986). Airports, too, were in public hands. Australian Airlines was merged into Qantas in 1992, and Qantas was then sold by the federal Labor government under Paul Keating in 1993. Keating also pushed privatisation of the airports, which was completed by the Coalition government of John Howard in 1997.

Had the industry been kept in government hands, a portion of the tens of billions in profits that have flowed to private shareholders could have been set aside as an emergency fund for use in a crisis situation like the one it faces today. A government-owned and operated industry could have been put into hibernation mode, with workers paid their usual wage for the duration. As it is, what we’re seeing is a case of “socialism for the rich, and capitalism for the poor”. Industry profits remain in private hands, while its losses are passed on to the government and its workers are thrown on the scrap heap.

Vocational education

The opening of vocational education—historically, the domain of the public TAFE system—to private providers is another disaster. TAFE funding was cut by one-third between 2007 and 2016, and over the same period more and more private operators were granted licences to operate as official trainers. Private providers, so we were told, would be more flexible and responsive to the changing needs of both students and industry. The result would be a more streamlined and efficient system, and more qualified “job ready” graduates.

In 2012, the federal Labor government entrenched the role of the private sector in vocational education by extending the HECS system of government loans to students enrolling in vocational courses, whether run by public or private providers. A new influx of students (and accompanying public funding) flooded the private system. According to research cited by the Australian Education Union, the number of publicly funded training hours delivered by TAFEs in Victoria (once again the centre of the privatisation drive) declined by 29 percent between 2009 and 2016, while in private providers it rose by 333 percent.

Instead of tailoring courses to the needs of students and employers, however, providers tailored them to the needs of their own profits, working hard to minimise the costs of course provision while maximising their intake of students. Investigative journalist Michael Bachelard summed up the situation in an article for the Sydney Morning Herald in 2015: “Limits on those eligible to register a college were virtually nil; the amount they could charge per course was uncapped; the curriculum and assessment was left up to new colleges; there were no minimum standards for entry into a course and no limit to the number of courses for which an individual could sign up. The ‘lifetime limit’ for VET FEE-HELP loans was almost $100,000, creating a huge honey-pot of potential money to lure unscrupulous salesmen”.

Much of the content was delivered online, and testing was in some cases non-existent. Graduates, many of them migrants whose right to stay in the country was dependent on getting a job, frequently gained few or none of the skills they required. And several major private operators subsequently collapsed, leaving thousands of students stranded and owing hundreds of millions of dollars to creditors (including the government).

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These examples barely scratch the surface. As the years have passed, more and more privatisation disasters have been added to the list. The horror of privatised aged care—so starkly exposed by the pandemic—is dealt with elsewhere in this issue. Other recent additions include ports in New South Wales and Victoria, disability services, land titles offices and prisons. No matter how unpopular privatisations are with the public, governments of all stripes have persisted with the privatisation craze.

The reason is simple. The state under capitalism isn’t meant to serve the public. It exists to manage and advance the interests of the capitalist class. Privatisation has been very good for them. Every time a new area of the economy is opened to the market, another profit windfall ensues. Corporate Australia’s appetite for privatisation won’t be sated until it has gobbled up every public institution possible. For the working class, privatisation has been an abject failure. Society has become less liveable, more unequal and more expensive as a result.

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